WeWork’s bankruptcy and Trump’s day in court tell a different tale about disruptors

There was something charming about 18 April 1930. That was the day on which the BBC radio announcer proclaimed at 8:45 pm, the time at which the evening news was to be read: “There is no news today.” Instead, the 15-minute news slot was filled with piano music. It’s all just too quaint in this day and age when 24 hours a day news stations rain down on us and when world-moving events such as some minor “celebrity” breaking a fingernail while taking a swipe at a paparazzo is good enough to report. Today there is too much news but for some reason the two items that most caught my attention, other than the running of the Melbourne Cup and the Reserve Bank of Australia having tightened by 25bps just after its major peers had opted to pass, are the bankruptcy of former wunderkind WeWork and, how could one miss it, Donald Trump’s day in court. They are in my mind related.

I very well recall 5 November, 1980. It was Wednesday. It was the day after Ronald Reagan had been elected to become President of the US and I was living in California. Hollywood was, and still is, decidedly liberal so there was much shaking of heads and rubbing of hands that one of their own should just have been elevated to the White House on a conservative ticket. All around me were people in the film industry who kept on apologising and assuring me that they were not to blame. In the end it didn’t turn out all that badly and four years later Reagan was re-elected in an extraordinary landslide in which he won 49 of the 50 states to Walter Mondale’s one. I also recall 8 November, 2016. I was staying with an American friend in Norwich. I had driven over for election night and have shuddering memories of incredulously watching the developing outcome and begging that I might wake up to find it all to have been just a bad dream. Yesterday, I tracked the events in the court in New York with Donald on the stand and ranting away about witch hunts and all the usual malarky. In my mind I have visions of 6 November, 2024, and I fear.

Then there is the final and inevitable bankruptcy of WeWork. Sure, the model of providing informal city centre office space to start-ups and other small businesses which otherwise could never get geographically close to the epicentre of business was brilliant, but it all happened at a time when parading around and selling oneself as a disruptor was more important than anything else and WeWork founder Adam Neuman knew how to do that in spades. The once essential disruptor thing has taken a huge hit and none greater than the recent conviction of Sam Bankman-Fried for fraud. I might at this time shine a light in the general direction of Cathy Wood, the charlatan-in-chief, but that would be kicking the girl when she is down, so I shall desist. Not that there’s anything crooked about Ms Wood, just incompetence dressed up as disruption.

It looks as though in business the disruptors have had their day and in saner political times, on the back of Trump’s performance in court, they might also have done in the political arena. Not even “Nearly but not quite”.

I cannot remember when I first wrote a piece in which I warned that central banks can help mitigate the amplitudes of the economic cycle but that they should not be expected to stop them. That has for the better part of a decade, maybe even longer, been a message cried out in the desert. It had become common currency to expect the Fed, the Bank of England and the ECB to decide that there was going to be no recession and, in the immortal words of former ECB President Mario Draghi “do whatever it takes” to engineer the desired outcome. Through all these years I have suggested that the longer we insist on monetary authorities postponing the natural interplay of expansion and contraction, the fiercer the downturn will prove to be. The louder the calls become for an early easing of monetary policy, the harder the central banks will have to push back. They can assist in mitigating the symptoms, but they cannot remove the causes.

It was principally the lockdowns and the rise in WFH that did for WeWork. Without the pandemic, it might have made it. But maybe not. The attitude that serious business is a huge game of staff parties with collective chants of “Ra-ra-ra, raise the bar!” was clearly an evolutionary dead-end. The party is over, and the new collective chant should be the old “back to basics”. It’s a standard line for team coaches after a heavy defeat when they assure the sports press and their fans alike that they will revert to focusing on the basics, to practicing the basics, to getting the basics right and to begin rebuilding from there.  Focusing on disrupting is a luxury one can afford when times are good, cash is aplenty, and investors have the financial flexibility to take a punt on this and that without having to worry about the annuity income that is being thrown off by the main portfolio.  

I yesterday received an email from a reader titled “Defying gravity” which simply read: “You have probably seen that the leader in the Economist last week – Too good to be true – seems to reflect much of what you have been writing about over many months!”. I had to admit that I did not. I gave up the Economist some years ago. It annoyed me when it wrote about credit derivatives and hailed them as the perfect vehicle for all banks to de-risk their balance sheets. No, the credit derivative simply shifts the risk from one institution’s balance sheet onto that of another. It doesn’t make the risk go away. Peters’ First Law. The article was so toenail-curlingly patronising and also wrong that I lost faith and have in the better part of twenty years not picked up another copy.  I now read the Spectator, Reaction, the musings of my fellow Teenage Scribblers, bits of The Times, bits of the FT, spasmodically tune into CNBC and Bloomberg TV and religiously listen to the weekly podcast of the inimitable Morris Sachs and Liam Allen on Inside Baseball with Old Chestnut. That’s about it. And I learn from the wealth of knowledge which readers in their emails share with me in their critiques of my own musings.

Thus, it was that I yesterday received from a reader, one notably smarter than myself who with monotonous regularity makes me feel a little silly – I justify myself by assuring myself that all I do is go back to basics – in which he showed me a pair of heatmaps constructed around hard and soft US economic data. The first covered the period from January 2005 to December 2010 and the second incomplete one begins in January 2019. Although clearly cognisant that holding up data from 2005 against that of 2019 is comparing apples and pears, he does highlight certain developing patterns which are a little worrying and are to be overlooked at our peril. In his covering letter, he writes:

“A fine morning to you too. Re US recession I thought you might like these heat maps (attached). At least some of this violent bond market rally is due to a positioning shakeout – everyone had the (bear) steepeners on and so the left-right combo punches of treasury deciding to issue more in the front end and (sensibly) not terming out at historically high real yields, and then Powell sounding decidedly dovish had the position on wobbly legs. The (finally) softer US data was just a final jab which by that point was all that was needed for a knockout. Stocks think it’s marvellous of course. Financial conditions easing! Hooray!

But it’s likely that the bond market is overshooting short term given a large amount of the price action is position washouts. And the big story really is that weaker US economic data. The only remaining growth engine in the world is starting to stutter. Not a great environment to be buying US stocks 10% from all-time highs and euro Stoxx 5% from the same mark. I think bonds have gone from being entirely uninvestable for years after QE and then inflation, to now being thoroughly investible as an asset class. Stocks now have a mighty competitor – absent for many years – and the economic backdrop appears to be shifting in support of bonds over stocks too.“     

I guess FOMO and TINA are dead and buried. Monetary authorities are in their own way telling markets not to rely on them to ride to the rescue, something they have sort of become accustomed to since the days of Alan Greenspan, and that they will have to find their own way forward. They’ve rediscovered Bill Martin’s legendary punchbowl and they are in the process of doing exactly what that long-serving Fed Chairman had said they should do. They are taking it away before the party has begun in clear sight of an investment industry packed with people who have heard the line but who have never experienced anything of the sort.  

After a couple of weeks of trading around the assumption that not all is bad and that the monetary authorities will once again bail out markets if they were to go critical, a new scepticism is developing. Minneapolis Fed President Neel Kashkari popped up on Fox News and reminded markets that in the Fed’s view and despite visibly easing price pressures it is too early to declare victory over inflation. “We need to let the data keep coming to us to see if we really have got the inflation genie back in the bottle so to speak.” The RBA’s move today after a couple of meetings when it remained on hold is a stark reminder that the global tightening cycle is not entirely over.

And back to the Donald and to his painful performance in court. He does have a point when he asks why it is that his asset valuations are being questioned in court when every property developer in the Big Apple and everywhere else does exactly the same. Panglossian valuation of the value of real estate is as old as time and Trump is not wrong in wondering why it is he above all others who is in the stocks? It is, Mr Trump, because you have been and want again to be POTUS. It is to you to set the highest of standards and not only to abide by the law but be seen to be doing so. Ulysses S. Grant’s presidency was blighted by accusations of corruption and although there was never any evidence of Grant himself having taken a bean in financial inducements his time in the White House will forever be remembered for graft and dodgy dealings.

Trump rose through the ranks as a disruptor. His dismissing of conventions, whether political or diplomatic, appealed to those who saw Hillary Clinton as the epitome of a self-enriching establishment. Trump was pure in that he was already rich and could therefore govern without having to keep an eye on the financial prize. He now stands accused of having enriched himself in an equally questionable manner, albeit not while in the White House but before he even got there. I yesterday evening watched part of the match between Chelsea and Tottenham. Chelsea had its first goal by Raheem Sterling disallowed for handball but then they went back, found a penalty had been committed and the equaliser was then scored from the spot. Trump is in the same boat with the video replay of his pre-presidential life and the ashes of past actions being raked over. The Democrats might win the battle, and even that is not certain, albeit at a price which might yet lose them the war.

Markets are finding that disruption for disruption’s sake is a luxury which can be afforded in happy times. That is something yet to take hold in the political sphere. This morning, Trump looks closer to the White House than he did yesterday although between now and a year today, the first Tuesday in November, much might happen in American politics. Eight years ago today, a Hillary Clinton anointment looked entirely inevitable. Seven years ago today – strictly speaking seven years ago tomorrow – we could all see a myriad of reasons why it had not been. Who knows what the chances are that back to basics might finally find a platform in both markets and politics. I can but hope although I’m not quite ready to begin holding my breath.

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